TrimTabs Investment Research reports that the pace of insider selling is now 30.6X that of insider buying the highest levels since they began reporting this data in 2004, to $6.1-billion, the highest amount since May 2008.
"The best-informed market participants are sending a clear signal that the party on Wall Street is going to end soon," said Charles Biderman, CEO of TrimTabs.
TrimTabs' data on insider transactions is based on daily filings of Form 4, which corporate officers, directors, and major holders are required to file with the Securities and Exchange Commission.
In a research note, TrimTabs explained that insider activity is not the only sign the rally is about to end. The TrimTabs Demand Index, which tracks 18 fund flow and sentiment indicators, has turned very bearish for the first time since March.
For example, short interest on NYSE stocks plummeted by 10.3% in the second half of July and margin debt on all US listed stocks spiked 5.9% in July, while 51.6% of advisors surveyed by Investors Intelligence are bullish, the highest level since December 2007.
"When corporate insiders are bailing, the shorts are covering and investors are borrowing to buy, it generally pays to be a seller rather than a buyer of stock," said Biderman.
TrimTabs also reports that the actions of U.S. public companies have been bearish. In the past four months, companies have been net sellers of a record $105.2 billion in shares
In the last week, we published the counter-opinons of Laszlo Birinyi, and Barry Ritholtz (Merrill Lynch Fund Managers' Survey, in Rally May Last Longer Than You Believe.
Birinyi says the recovery in the economy and earnings could far exceed expectations, and the market is pricing in the upside surprise.
“The markets are suggesting that the economy has turned the corner and is going to do a lot better than most people anticipate,” Birinyi, the founder of Westport, Connecticut- based research and money-management firm Birinyi Associates Inc., said today in an interview broadcast on Bloomberg Radio and Television. “I’m still very optimistic.”
Ritholtz pointed out that according to the Merrill Lynch Fund Managers' Survey, professionals and fund managers have been buying this rally in a big way, and that may mean the market has a farther distance to run right now.
Investor optimism about the global economy has soared to its highest level in nearly six years, with portfolio managers putting their cash back into equity markets, according to the Merrill Lynch Survey of Fund Managers for August.
A net 75% of survey respondents believe the world economy will strengthen in the coming 12 months, the highest reading since November 2003 and up from 63% in July.
Confidence about corporate health is at its highest since January 2004. A net 70% of the panel respondents expect global corporate profits to rise in the coming year, up from 51% last month.
August’s survey shows that investors are matching their sentiment with action, by putting cash to work. Average cash balances have fallen to 3.5% from 4.7% in July, their lowest level since July 2007.
Bespoke pointed out that Short Interest has dropped to multi-year lows, and that pros are more optimistic than individual investors, in Pro Investors More Bullish than Individuals.
According to this week’s survey of the American Association of the Individual Investors (AAII), only 1/3 of investors surveyed are currently bullish, while nearly half (49%) are bearish.
Bottom Line: Insiders are bearish or taking advantage of better prices in the market to sell their stakes, Pros are bullish.
Individuals are somewhere in between, not as bearish as insiders and not as bullish as pros.
